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(c) 2018 Jon L Gelman, All Rights Reserved.

Friday, July 14, 2017

The Rise and Fall of Workers' Compensation - The Path to Federalization

Every year The Board of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Supplemental Medical Insurance Trust Funds makes an actuarial guess as to the future financial solvency of Medicare. The report creates an annual news frenzy in the workers’ compensation community since Medicare is both the safety net for injured workers and playground for employers and their insurance companies to use in cost shifting,

The annual report retains the common theme that Medicare is soon going to be totally depleted. The specific date changes from year to year but the plot is the same. Medicare is going to be exhausted. The blame predominately falls on the fact that going forward there will be a lack of contributions to support the onslaught of baby boomers retiring. As Robert J.Gordon points out in his book, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War, lower wages and fewer hours worked by American workers pose the most critical factors as to why the Medicare system is going dry.

This drama plays out every year assuring the stakeholders that the Medicare system will be solvent for a while longer. In reality, the long-term storyline is the same. The system is going to collapse in the years ahead if the train stays on course. Annually it is reported that baby boomers will luckily make it to the station first and get their monumental last year of terminal medical costs covered. For others, including the Millennials (who only read 140 character tweets, ie. “Medicare works,”) the news is quite the opposite,

Senator Elizabeth Warren (D-Mass) declared last week that, "The next step is single-payer' health care." Recent polling leans strongly in that direction as the nation moves down "The Path to Federalization."

Compounding the scenario is the reality that increased medical costs in the US are not yielding better outcomes. Therefore perpetuating the present medical delivery system is not a positive approach.

So the "real news" in the workers' compensation world is not really the interpretation of unreported /unpublished case decisions, that so not constitute precedent or are binding upon any court). The real news is whether either Medicare or Workers' Compensation will win the race to the bottom. The future is not insolvency. The future is what will be the replacement and whether a new administratively run single-payer system is, in reality, the only program on the horizon.

The major findings of the 2017 Medicare Trustees Report appears below.

In 2016

In 2016, Medicare covered 56.8 million people: 47.8 million aged 65 and older, and 9.0 million disabled. Over 32 percent of these beneficiaries have chosen to enroll in Part C private health plans that contract with Medicare to provide Part A and Part B health services.

Total expenditures in 2016 were $678.7 billion, and total income was $710.2 billion, which consisted of $700.4 billion in non-interest income and $9.8 billion in interest earnings.

Assets held in special issue U.S. Treasury securities increased by $31.5 billion to $294.7 billion. Short-Range Results

The estimated depletion date for the HI trust fund is 2029, one year later than in last year’s report.

As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years.

HI expenditures are projected to be lower than last year’s estimates, mostly due to lower inpatient hospital utilization assumptions and lower-than-expected spending in 2016. In 2016, HI income exceeded expenditures by $5.4 billion.

In 2017

The Trustees project modest surpluses to continue in 2017 through 2022, with a return to deficits thereafter until the trust fund becomes depleted in 2029.

The assets were $199.1 billion at the beginning of 2017, representing about 67 percent of expenditures during the year, which is below the Trustees’ minimum recommended level of 100 percent.

The HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003 (as discussed in section III.B). Growth in HI expenditures has averaged 2.1 percent annually over the last 5 years, compared with non-interest income growth of 5.9 percent.

Over the next 5 years, projected annual growth rates for expenditures and non-interest income are 5.7 percent and 5.8 percent, respectively.

The SMI trust fund is expected to be adequately financed over the next 10 years and beyond because premium income and general revenue income for Parts B and D are reset each year to cover expected costs and ensure a reserve for Part B contingencies.

A hold-harmless provision in the law restricted Part B premium increases for most beneficiaries in 2017 to an average increase of about $4.00 per month.